Colombia aims for new peace deal with Farc

The question investors are asking is can Colombian president Santos get the deal with Farc ratified?

820-Santos-1200

Santos: can he bring peace to Colombia

Colombia's government and the Marxist rebels of the Revolutionary Armed Forces of Colombia (Farc) have agreed on a new peace pact in a bid to end the country's five-decade-long civil war, six weeks after the original deal was narrowly rejected in a referendum amid objections it favoured the rebels too heavily.

The main question now, says The Economist, is whether the country's president, Juan Manuel Santos, will succeed in getting the revised agreement ratified. Under the terms of the modified accord, the rebels will have to surrender money and holdings to compensate victims of the conflict. Members of Farcwill be allowed to run for public office once they demobilise and disarm, while guerrilla leaders who confess to war crimes will be subject to "restricted liberty".

If Santos is able to end the war and solves the country's fiscal challenges, Colombia looks well-placed to prosper. The government's key tax reform bill is expected to face an uphill battle in Congress, but if approved, should be enough to plug a hole in the nation's finances caused by falling oil revenues. This would be enough to preserve the country's investment-grade credit rating and perhaps improve it. "We could raise our rating to triple B+," said the finance minister, Mauricio Crdenas.

Emerging markets battered by shock result

Emerging markets (EMs) were among the hardest hit by Donald Trump's victory, after he pledged to pull America out of the Trans-Pacific Partnership, to build a wall along the border with Mexico and impose big tariffs on Chinese exports. Mexico's peso fell to a record low against the dollar, while the Brazilian real and South African rand lost almost 8% each.

Several analysts believe the rout will deepen. While higher infrastructure spending and lower taxes could boost demand and overall US activity, prioritising trade and immigration could damage supply chains and trade activity, resulting in weaker GDP growth in EMs, say JP Morgan Cazenove analysts.

However, the fears may be overdone, says Dimitra DeFotis in Barron's. The EM growth recovery appears likely to continue. She points to four encouraging signs of a pick-up in growth: rising purchasing managers' indexes, loosening policy, low levels of developed-market activity and the surge in oil prices. "Estimates from our best-performing indicators suggest that the rate of EM GDP growth will increase by just under 1% by end-2017." Rick Rieder of fund manager BlackRock agrees. EMs "represent a great opportunity going into next year", he says.

Will Italy reject reforms?

After Brexit in the UK and the election of Trump in the US, Italy could be the next country to face an anti-establishment revolt. Voters will go to the polls on 4 December in a referendum on constitutional reforms called by the prime minister, Matteo Renzi. The core element of the proposed changes is a reduction in the size and powers of the Senate, to ease legislative gridlock.

Renzi says he may resign if he loses, which could spark early elections in which the anti-establishment Five Star Movement (M5S) could emerge triumphant. The M5S wants to stage a referendum on Italy's euro membership and is running neck-and-neck with Renzi's Democratic Party in the polls, having already seized power in Rome and Turin.

Many analysts fear that the referendum could trigger Italy's exit from the EU. The Nobel Prize-winning economist Joseph Stiglitz told Business Insider that it could lead to a "disastrous outcome" and a "cataclysmic event" in Europe. But for analysts at Citigroup, the referendum is not a make-or-break event. Even if it's a "no" wins and Renzi resigns, he may "be re-appointed... to transition the country into the 2018 election".

Recommended

Four of the best investment trusts for investing in emerging markets
Investment trusts

Four of the best investment trusts for investing in emerging markets

Investors need to tread very carefully in this risky sector. Here are the best ways to approach it
22 Mar 2021
Storm brews in emerging markets as investors pull cash out
Emerging markets

Storm brews in emerging markets as investors pull cash out

Foreign investors have begun to pull cash out of emerging markets as they begin to look less attractive when compared to the rising return from holdin…
12 Mar 2021
I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Russia’s stockmarket is cheap for a very good reason
Emerging markets

Russia’s stockmarket is cheap for a very good reason

On a cyclically adjusted price/earnings ratio of just 7.3, Russia's stockmarket is in an entirely different value category to the rest of the world. A…
9 Apr 2021

Most Popular

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021
Nuclear power might never be popular – but now looks a good time to invest
Commodities

Nuclear power might never be popular – but now looks a good time to invest

Nuclear power gets a very bad press, but it is the ultimate renewable energy source. Interest in it is perking up again, says John Stepek. Which means…
9 Apr 2021